10 reasons Wall Street will hit bottom, crash

Commentary: Gambling-addicted banks need a Betty Ford Center

SAN LUIS OBISPO, Calif. (MarketWatch) — Yes, Wall Street will crash. Has to. They’re gambling addicts. Dodged the bullet in 2008. But learned nothing. Now killing reforms. Teamed up with the Super Rich, CEOs, lobbyists, and crony politicians. It’s only a matter of time.

Yes, they’ll crash, again. No matter how anemic the recovery. No matter how much more debt they pile on taxpayers. No matter who’s president. Crash.

The Betty Ford Center, Rancho Mirage, Calif.

How do I know Wall Street will hit bottom? First off, most American know somebody who’s trapped in addictive behavior. I got a front-row seat years ago as a professional helping a few hundred addicts, alcoholics and gamblers getting help from the Betty Ford Center and others like it.

Second, the Treasury secretary and his wife warned us. Seriously, Tim Geithner highlighted her in a recent Wall Street Journal op-ed, “Financial Crisis Amnesia,” that made clear how addictive and clueless Wall Street and their team are: “My wife looks up from the newspaper with bewilderment at another story about people in the financial world or their lobbyists complaining about Wall Street reform.”

Yes, amnesia. Wall Street’s got a bad case of denial, blind to “the lessons of the crisis and the damage it caused to millions of Americans.” So it’ll happen again. And soon. Why? Mr. Secretary’s diagnosis: “Amnesia is what causes financial crises.” Look closely.

Wall Street has all 10 self-destructive traits of a gambling addict

Yes, Wall Street insiders need treatment. They’re like addicts who will resist treatment till the bitter end, insisting there’s no problem, protecting their business as usual high-life. Their addiction has control of them, they’re in denial, in amnesia, blind to the long-term damage they’re doing to America.

So yes, Wall Street must crash, will hit bottom. America cannot reset the economy because Wall Street won’t go willingly. So here, you do the full diagnosis. Here are 10 characteristics of this self-destructive addictive personality type. Think about what is happening on Wall Street today, stuff like their war against the Volcker Rule. See why Wall Street’s collective mental state is so damaged it’s on track to hit bottom, crash and burn, in a meltdown more damaging than 2008, as they take down the rest of America.

1. Amnesia: Since the 2008 meltdown, Wall Street’s memory erased

Begin with Geithner diagnosis Wall Street’s addiction: Banks have “no memory of extreme crisis, no memory of what can happen when a nation allows huge amounts of risk to build up outside of the safeguards all economies require.” Amnesia makes Wall Street deaf. Can’t hear. Remember, bank insiders are short-term thinkers who naturally discount long-term costs to zero, pass them on to taxpayers and future generations.

2. Overoptimistic: Wall Street casino’s blowing another megabubble

Since the dot-com crash of 2000, when the Dow peaked at 11,722, to today with the market hovering around 13,000, Wall Street’s lost an inflation-adjusted return of about 20% of your retirement money. And economist Gary Shilling sees no growth through the next decade ... Nouriel Roubini warns of a decade of dark days ... Pimco’s Bill Gross sees a long “new normal” of lower returns … GMO’s Jeremy Grantham predicts “Seven Lean Years” … Martin Weiss warns that a “historic world-changing event is about to crush the U.S. economy and stock market.” Still, Wall Street lives in a fantasy land, ignores warning signs, pushing mega-IPOs, risky junk. Protect yourself.

3. Immature: totally narcissistic, the ‘King Baby’ syndrome

Yes, Wall Street’s an immature child. Members of AA call this the “King Baby” syndrome: People who never grow up. They want what they want when they want it. Now. No compromise, like today’s politicians. In “The Coming Generational Storm,” Larry Klotnikoff and Scott Burns warn of the massive debt we’re leaving for our “kids.” Eventually these kids will rebel against the $70 trillion burden. Wall Street’s addictive spenders are at risk of a revolution that will make the Arab Spring look like a picnic.

4. Greedy: Yes, “greed is still good” … for Wall Street’s gamblers

Michael Douglas’ famous indictment is truer today than ever. Vanguard’s founder Jack Bogle confronted the toxicity of out-of-control greed in his “Battle for the Soul of Capitalism.” Wall Street has become a soulless, amoral culture that cares nothing about the rest of America. Wall Street has sunk back deep into their business-as-usual culture of greed, blind to the public consequences of their behavior. Ethics? Integrity? Fiduciary duty? No. Investors come second. Insiders first. Always. And nothing will change till Wall Street hits bottom, crashes. Then we can truly reform Wall Street as we did in the 1930s.

5. Compulsive liars: Never trust Wall Street to tell the truth

Members of AA use a simple test: “How can you tell when an alcoholic or addict’s lying?” Answer: “His lips are moving.” You can’t believe anything said on Wall Street. Why this culture of lying? Simple: To create illusions, like “investors come first,” “you can trust us,” and “we the best interests of America at heart.” Wrong. Their sole loyalty is to insiders. Period. Carole Geithner sees through the illusions.

6. Insatiable: Wall Street’s hooked on ‘more is never enough’

Wall Street is past the point of no return, an addict incapable of stopping, must hit bottom. In “American Mania” psychiatrist Peter Whybrow says we’re a nation of addicts, we’re insatiable, “more is never enough.” Trillions in new debt annually, big bonuses, zero savings, as bank bailouts roll on, with the Fed feeding Wall Street cheap money. Forget reforms. No change till the banks hit bottom. A return to the Glass-Steagall might help, but Wall Street hates that as much as addicts hate Betty Ford.

7. Macho-macho: Regardless of the facts, they can’t admit failure

Addicts cannot see their weaknesses. In “Confronting Reality” Larry Bossidy and Ram Charan warn: “The greatest consistent damage to businesses and their owners is the result not of poor management but of the failure, sometimes willful, to confront reality.” Like Wall Street insiders, they simply cannot admit the gross mistakes, moral lapses and catastrophic errors in judgment that triggered the 2008 crash. They’re blind to their faults.

In “Stocks for the Long Run” Jeremy Siegel studied market history from 1801 to 2000, comparing the biggest up and down days. Bottom line: Markets are random. There were no obvious reasons for 75% of the moves that trigger either long-term gains or long-term losses. Wall Street cannot predict crashes. But they can create them. Finance professors Terrance Odean and Brad Barber did some long-term research on both American and China investors. Conclusion: The “more you trade the less you earn.” Yes, returns for buy-and-hold investors are a third higher than heavy traders. No wonder Wall Street pushes active trading.

9. Irrational: Wall Street gets rich off investor irrationality

Behavioral economics is the psychology of investment decisions, based on Nobel Economist Daniel Kahneman who proved investors are irrational. That was 2002. Investors are still irrational, Wall Street as well as Main Street. And yet we still assume we’re making rational decisions! Admit it, investors are irrational. As behavioral finance guru Richard Thaler once admitted: Wall Street “needs investors who are irrational, woefully uninformed, endowed with strange preferences, or for some other reason willing to hold overpriced assets.” Main Street’s naive irrationality makes Wall Street very rich.

10. Myopic: Failure to think long-term guarantees another crash

Wall Street’s addiction to short-term thinking guarantees another crash. But worse, Wall Street’s shortsightedness is setting up an inevitable global catastrophe and self-destruction of their capitalist ideology. In “Collapse: How Societies Choose to Fail or Succeed” Jared Diamond warns that throughout history surviving cultures are always the ones that focus on long-term planning, far in advance of crises. Failed societies are the ones whose leaders “focus only on issues likely to blow up in a crisis within the next 90 days.” And that fits Wall Street’s blind obsession with quarterly earnings, annual bonuses, 1% rates, no Volker Rule, no reforms, ever, more is never enough.

So how did your “Addictive Personality Rating Score” add up? Chances are you diagnosed Wall Street with a perfect 10 out of 10. No wonder Wall Street’s insiders need treatment for their gambling addiction, at a Betty Ford Center.

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